Farmers set to vote on Wools of NZ, CP Wool merger

Farmers are set to vote on a merger between Wools of NZ and the Primary Wool Co-op owned CP Wool. Photo / Flie

Farmers will this month vote on a plan to merge the operations of Wools of New Zealand and the Primary Wool Co-op's CP Wool.

Primary Wools (PWC) bought Carrfields' 50 per cent shareholding in CP Wool earlier this year and now owns the whole business.

The vote comes amid renewed interest in strong wool for carpet making, although the sector remains agriculture's problem child due to severely depressed prices.

Under the proposed merger, Wools of NZ (WNZ) and PWC will remain the shareholding vehicles while a new entity will jointly own the combined trading business of WNZ and CP Wool.

PWC supplier shareholders will vote on November 4 and WNZ will conduct its vote on the following day.

The combined wool buying entity has big plans.

WNZ chair James Parsons said the group will be one the biggest procurement companies, alongside the likes of PGG Wrightson, Bremworth's Elco Direct, and New Zealand Merino, handling about 30 per cent of the country's wool clip.

PWC, which has 1400 grower shareholders, handles 170,000 bales while WNZ has 730 grower shareholders and handles 33,000 bales.

Parsons says WNZ is vertically integrated, exporting branded wool.

"If you look at the two businesses, one has got a lot of volume but is very much at the procurement end.

"The other one has got a lot more customer facing and consumer facing, but with a smaller procurement footprint.

"If you put the two together there are significant synergies," Parsons told the Herald.

The combined business would be worth $7 million and with a combined revenue of about $30 million.

"We are not talking huge amounts here, it's a more about the opportunity that it creates in terms of wealth of the shareholders and the wool sector.

"There is a lot of fragmentation in the wool industry and growers have been looking for some consolidation and change for a long time.

"The boards are in full agreement that we should do something, and the opportunity is significant," he said.

But Parsons said it would be naive to think that the merger, by itself, could turn the sector around.

"However, there will be some savings from which we can reinvest in demand creation activities, which we believe is compelling."

Consolidation on its own is not the answer but it would certainly be a positive first step, he said.

WNZ has, since July, been manufacturing wool carpets, which are now at a similar price point to synthetic carpets, Parsons said.

Persons said WNZ is already selling carpet to 90 New Zealand stores and the feedback so far had been positive.

If farmer suppliers vote in favour or the proposal , the merger would take place on November 30.

Bremworth, formerly Cavalier, stopped has selling synthetic carpet and has focussed purely on woollen product.

New Zealand's strong wool sector is sitting on a big opportunity thanks to a wave of "eco-consumerism," Strong Wool Action Group executive officer Andy Caughey says.

Since the 1980s the export price of strong wool has tanked from a high of around $10 a kg to around $2.50 now.

Caughey said for the first time in 40 years the market conditions are optimistic for strong wool, a courser fibre than the likes of fine merino.

In the year ending June 2020, New Zealand exported 71,028 tonnes of clean strong wool an average price of $2.27 a kg.

Lifting this back up to $10 a kg would transform the industry from a $200 million export industry to a nearly $750 million export, Caughey said.

"The world is turning away from plastics and retailers are already responding," he said.

The Strong Wool Action Group was established to carry out the recommendations of the Wool Industry Project Action Group.